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Cloud datacenters continue to surprise the industry

It is an exciting time for the industry! Starting with early sales of 10GbE SFP+ optics to Google in 2007, the global demand for high-speed optics surged in 2010-2016. Volume shipments of 40GbE optics exceeded 3 million units in 2016 with 78% shipped to Cloud customers. Shipments of 100GbE optical transceivers are likely to reach 3 million units in 2017, exceeding our previous forecast by 20%.

Our forecast for shipments of 100GbE transceivers in 2017 was partly based on estimates for manufacturing capacity of leading suppliers. Many of these vendors were able to ramp their production faster than expected and several new vendors started shipping 100GbE modules in 2017. Leading customers for 100GbE products are planning to double and possibly event triple their purchases in 2018. It will be another busy year for suppliers trying to catch up with demand and make a profit. Reflecting this situation, we increased projections for shipments of many 100GbE products in 2018. This also impacted our longer term projections, including our forecast for 400GbE optics.

LightCounting’s forecast methodology includes correlation between the growth rates of the aggregated bandwidth of optical connectivity inside datacenters and the datacenter traffic. Amazon, Facebook and Google indicated that traffic in their mega-datacenters increased more than 100% in 2016 and it is likely stay at this rate in 2017. Data collected by LightCounting on shipments of optical transceivers to these vendors is consistent with close to 100% per year growth in traffic.

Figure below presents LightCounting data and forecast for the growth rate of bandwidth of optical connectivity inside Cloud Datacenters, showing a sharp increase in 2016-2017. The figure also shows projections for traffic growth inside Cloud Datacenters published by Cisco in 2016. The discrepancy between the curves illustrates how the industry underestimated the impact of mega-datacenter operators on demand for optics.

Figure: Growth rate of traffic and bandwidth of optical connectivity in Cloud Datacenters

Source: LightCounting

The roadmap beyond 100GbE remains uncertain. Too many directions to choose from. Our report offers a detailed analysis of this situation, including forecast for several categories of 200GbE and 400GbE transceivers.

Google is very clear their next speed will be 200GbE. However, Google wishes to deploy 200GbE ports in 2x200GbE module in the OSFP form factor. This makes sense in that a “400GbE” switch with 32 OSFP ports will provide 64 200GbE connections. By doubling the radix of their switches, Google will likely save one tier of switching.

Microsoft and Facebook have said publically they don’t want 200GbE. AWS is less public but pushing hard for 400GbE. They all want 400GbE as their next speed. Facebook’s 400GbE strategy is changing. Previously, they prioritized 400G-FR4 MSA modules to deploy 400GbE. Their new architecture will mostly use 400G-DR4 QSFP-DD modules in breakout mode to 1x100G modules, which does not require a 400GbE MAC. This approach enables higher front panel density and 4X higher radix switches than will be possible with a 400GbE architecture. This means less tiers of switching, less latency and other benefits. They will also be using 100Gb/s lambda technology once it becomes available.

LightCounting releases a new report addressing illumination in smartphones and automotive lidarIn 2019, the market for VCSEL (vertical cavity surface-emitting laser) illumination in smartphones will exceed $1.0 billion – now nearly triple the size of the market for communications VCSELs. That’s quite remarkable for a market that didn’t exist three years ago.3D sensing in smartphones felt like an overnight sensation, but the technology foundations were laid down years ago with Microsoft’s Kinect – a motion-sensing peripheral for gamers released in 2010 but discontinued in 2017 after lackluster sales. Lumentum supplied lasers to the Kinect almost a decade before the iPhone opportunity emerged; the company was ready to profit from the iPhone X opportunity when Apple decided to launch 3D sensing for facial recognition in September 2017.

Figure: 3D depth-sensing meets the Gartner Hype Cycle

Source: Gartner with edits by LightCounting

If all technologies follow the Gartner Hype Cycle, shown in the Figure above, then 3D sensing in smartphones is now moving up the slope of enlightenment. Android brands raced to add 3D sensing to their flagship phones in 2018 – the Xiaomi Mi8 Explorer and Oppo Find X phones were first – although these only sold in single digit million quantities. Huawei also brought out new phones with 3D sensing, but the ongoing U.S. export ban on the Chinese company must be hurting the company’s traction outside China. Apple continues to dominate the market as all new iPhones released by Apple since 2017 have included 3D sensing on the front of the phone. Apple is expected to introduce 3D sensing for ‘world-facing’ applications in 2020, which adds another laser chip to every phone.

Last year illumination for lidars were not included in our market forecast since LightCounting considered it unlikely that lidar would penetrate the consumer market to any great extent over the forecast period. All indicators now point to a market for lidar illumination ramping up in 2022 and beyond. Optical components firms are now shipping prototypes and samples of VCSELs, edge emitters and coherent lasers to customers developing next-generation lidar systems – many of them building on their expertise in illumination for optical communications and smartphones.

As was the case with smartphones, the foundations for lidar technology were laid down much earlier – in this case with the DARPA Challenge 2007, where the winning vehicle used a 64-laser lidar system from Velodyne Acoustics (now Velodyne Lidar). Lidar is considered by the majority of the industry to be an essential part of the sensor suite required for autonomous driving, helping the vehicle to navigate through the environment and detect obstacles in its path. The first commercial deployments have begun. In Germany, lidar on the Audi A8 enables the car to drive itself for limited periods under specific conditions. In Phoenix, Arizona, you can hail a ride in a Waymo robotaxi.

Investor enthusiasm for lidar is undeniable with nearly half a billion dollars invested in lidar start-ups in 2019 according to our analysis of publicly available investment data. Notable deals include $60 million for U.S. company Ouster in March, Israel’s Innoviz Technologies Series C round of $132 million in the same month, and $100 million for U.S.-based Luminar Technologies in July. Interestingly, these examples illustrate the variety of lidar approaches: each company is building a different type of lidar based on a different wavelength: 850nm for Ouster, 905nm for Innoviz and 1550nm in the case of Luminar. There’s an open technology battle and they can’t all be winners.

The automotive lidar market seems to be close to the peak of ‘inflated expectations’. It’s easy to understand why. The automotive industry is enormous, with nearly 100 million vehicles (including trucks) produced annually. Players like Baidu, GM Cruise and Waymo are backed by deep corporate pockets, and new entrants like Aurora and Pony.ai are attracting hundreds of millions in investment. Intel’s $15.3 billion purchase of Mobileye in 2017 was also directed at autonomous driving. Sensor company AMS is in a $4.8 billion battle to acquire German semiconductor lighting firm Osram with its eye firmly on lidar.

However, signs indicate that the descent into the trough of disillusionment could have already begun. Waymo has yet to roll out its robotaxi services more widely – and this summer admitted that its vehicles needed more testing in the rain. GM Cruise has delayed launch of commercial services for self-driving cars beyond 2019 and is reluctant to commit to a new timescale, with its CEO Dan Ammann observing that safety is paramount; automotive is not an industry where you can “move fast and break things” he said. A casualty of the slow pace was optical phased array lidar developer Oryx Vision, which closed its doors in August and started to hand money back to investors.

While lidar is being deployed commercially today, prices are not conducive to mass production, and there are open questions around regulation, safety, ethics and consumer acceptance. Do local laws prohibit self-driving cars? Will they really be safer than humans? Who is responsible for a crash? LightCounting remains skeptical about the pace of adoption of autonomous vehicles, but will be watching the market closely and with optimism.